IAASA – An Update Presentation to ACCA CPD Sessions Castletroy Park Hotel, Limerick

2. IAASA – An Update Presentation to ACCA CPD Sessions Castletroy Park Hotel, Limerick UCD Students’ Centre, Dublin February 2006 Ian Drennan Chief Executive

3. Presentation Overview • Commencement/Funding • Remit/Functions • Supervision of the Profession • Financial Reporting Supervision • Q&A

4. Commencement • Those sections of the Act necessary to permit the establishment of the Authority were commenced on 20 December 2005 (S.I. No. 791 of 2005). • Requisite Ministerial designation occurred on 3 January, from which date the Supervisory Authority came into formal existence. • Most of the Authority’s statutory functions and powers were commenced on 3 February 2006 (S.I. No. 56 of 2006) • AIA, CIMA and CIPFA were prescribed on 6 February (S.I. No. 57 of 2006).

5. Prescribed Bodies • Nine Prescribed Bodies; • Six Recognised Bodies (ACCA, ICAEW, ICAI, ICAS, ICPAI and IIPA); and • Three Ministerial prescriptees (following Authority recommendation). • The effect of Prescription is to: • bring prescriptees within the Authority’s supervisory remit; and • require prescriptees to contribute towards the Authority’s funding.

6. Budget & Funding - 2006 • Total budget – 2006: €2.297m, provided thus: • Exchequer 919,000 • ICAI 757,000 • ACCA 233,000 • ICPAI 170,000 • CIMA 96,000 • IIPA 54,000 • ICAEW 21,000 • AIA 18,000 • CIPFA 15,000 • ICAS 14,000

7. Statutory Remit (S8) • To supervise how the prescribed accountancy bodies regulate and monitor their members; • To promote adherence to high professional standards in the auditing & accountancy profession; • To monitor whether the accounts of certain classes of companies and other undertakings comply with the Companies Acts and, where applicable, Article 4 of the IAS Regulation [reference to IFRS inserted by S.I. No. 116 of 2005]; and • To act as a specialist source of advice to the Minister on auditing and accounting matters.

8. Supervision of thePrescribed Accountancy Bodies

9. Supervision of Accountancy Bodies • The Authority’s statutory remit, insofar as it directly relates to the prescribed bodies, can be broadly divided into the following categories: • approval; • supervision; and • investigation/enforcement.

10. Approval • The Authority’s approval functions include: • approval of bodies’ constitutions, bye-laws, regulations and standards, together with any subsequent amendments thereto; • granting of recognition to accountancy bodies for audit purposes; • the attachment of conditions to recognition; and • pre-approval of bodies’ regulatory and monitoring plans.

11. Supervision • The Authority’s supervisory functions include: • supervision of the operation of each prescribed body’s complaints, investigation, disciplinary and appeal procedures; • supervision of how each recognised accountancy body monitors its members; • the performance of section 25 reviews of members; and • ex-post review of bodies’ reports on their regulatory and monitoring activities and requiring explanations for variances between planned and actual activity.

12. Investigation/Enforcement • Conduct of enquiries under section 23 into whether a prescribed body has complied with its approved investigation and disciplinary procedures; • Where not satisfied that a prescribed body has complied with its approved investigation and disciplinary procedures, the Authority may impose sanctions on that body; • Undertake investigations under section 24 into possible breaches of the standards of a prescribed body by a member/member firm; and • Where a member is found to have committed a breach of a body’s standards, the Authority may impose any sanction available to the body of the member.

13. Approach • In discharging its supervisory remit over the prescribed bodies, the Authority is adopting the following approach: • each body is being subjected to an initial review (visits commenced on 6 February); • reviews are examining each body’s systems, practices and procedures etc.; • scope and frequency of subsequent reviews of each body will be determined having regard to appropriate risk factors, including, inter alia, results of initial reviews.

14. Approach • Reviews include, inter alia, the examination of: • Constitutions/Memorandum & Articles etc.; • Bye-laws & Regulations; • Codes of Ethics and Rules of Professional Conduct; • Applicable Standards;

15. Approach • Inter-relationship between members’ obligations and disciplinary processes; • Complaints handling procedures; • Investigative processes and procedures; • Disciplinary processes and procedures; • Appeals processes and procedures;

16. Approach • Admissions and licensing processes and procedures, i.e. • issuing; • renewal; and • revocation of certificates and authorisations etc. including experience, PII, CPD etc.;

17. Approach • Monitoring processes and procedures, including: • firm risk assessment and selection methodologies; • monitoring cycles; • monitoring approach, scope, emphasis, programmes and file selection procedures; • grading criteria; and • bodies’ follow-up to unsatisfactory monitoring visits. • Reviews also include ‘shadowing’ bodies’ inspection staff on selected visits to member firms. • IAASA working with POBA in the UK to reduce unnecessary duplication of supervisory activity.

18. EU & International Developments • EU has recently approved revisions to the 8th Company Law Directive (statutory audit). • Member States required to transpose the Directive into domestic legislation by early 2008. • Directive requires all Member States to establish public oversight systems. • IAASA legislation complaint with the revisions.

19. EU & International Developments • In preparation for the enactment of the Directive, the EU Commission has established the European Group of Auditors’ Oversight Bodies (‘EGAOB’). • IAASA is an EGAOB member. • EGAOB role includes: • facilitating co-operation between Member States’ oversight systems; • examining relevant considerations in the context of transfer of information between authorities including, for example, professional secrecy and data protection implications; • contributing to the evaluation of 3rd countries’ oversight systems; and • contributing to the EU’s examination of ISAs with a view to adoption.

20. EU & International Developments • Internationally, steps are being taken to establish an international forum of audit regulators. • IAASA is party to this initiative. • Rationale for establishing such a forum includes: • facilitating co-operation between international oversight systems and reciprocity arrangements; • facilitating liaison with other key international players, including the global firms, securities regulators, standard setters, preparers and users etc.

21. Financial Reporting Supervision Function

22. Authority’s Review Constituency • Remit is provided for by Section 26 of the Act. Section 26 will be commenced later in the year. • Remit: ‘To monitor whether the financial statements of certain classes of companies and other undertakings comply with the Companies Acts and, where applicable, the IAS Regulation’. • The Authority’s review constituency comprises: • all plcs (whether listed or not) and their subsidiaries; • all private companies limited by shares that, in both in the relevant financial year and the immediately preceding financial year, satisfy the following criteria: • balance sheet total exceeds €25m, and • turnover exceeds €50m;

23. Authority’s Review Constituency • all private companies limited by shares which, when aggregated with their subsidiary undertakings, exceed the aforementioned thresholds and their subsidiaries; • certain other undertakings, and where applicable their subsidiary undertakings, that satisfy the aforementioned criteria, including unlimited companies and partnerships whose members having unlimited liability are themselves limited companies (aka ‘Regulation 6 Entities’).

24. Relevant Exemptions / S15 Levy • Act provides potential exemptions for: • certain entities already subject to, what in the Minister’s opinion, is an appropriate level of supervision/regulation; and • S110 TCA ’97 entities (securitisation vehicles). • Authority has commissioned research to establish the scale of the constituency.

25. Relevant Exemptions / S15 Levy • Authority developing policy options on S15 levy. • Considerations include: • risk; • impact; • cost/benefit considerations; and • legal advice received by the Authority. • Complexities include: • private companies’ turnover and total assets figures not captured by CRO. Therefore, a large scale manual exercise is required; • S17 guarantees; • filers of ultimate group financial statements; • identity of S110 companies. • Public consultation will be undertaken by the Authority.

26. Approach toFinancial Statement Supervision • Act suggests a proactive rather than reactive approach to monitoring. • CESR standards require a proactive approach in any event (next slide refers). • Risk based selection methodologies will be employed which may, for example, give rise to: • entity/group specific reviews; and/or • issue/sectoral specific reviews. • Emphasis will be on instances of material non-compliance.

27. Enforcement of IFRS in the EU • The IAS Regulation provides, inter alia, that a proper and rigorous enforcement regime is key to underpinning investors’ confidence in financial markets and, in that context, that‘…the [EU] Commission intends to liaise with member States, notably through the Committee of European Securities Regulators (CESR), to develop a common approach to enforcement.’ • To that end, CESR has established an enforcement co-ordination forum (EECS), of which IAASA is a member. • Through that forum, a database of member States’ enforcement decisions regarding IFRS has been established. • While not having the strict status of precedents, these decisions will serve to inform other enforcers’ deliberative and decision making processes.

28. Enforcement • In circumstances where there is, or may be, an issue regarding a set of financial statements’ compliance with the Companies Acts or the IAS Regulation, and those financial statements have been: • disseminated to members in advance of the AGM; or • laid before the AGM; or • delivered to the Registrar the Authority may give notice to the directors of the entity concerned.

29. Enforcement • The aforementioned notice must specify: • the matters in respect of which it appears to the Authority that a question of non-compliance arises; and • a period of not less than 30 days in which the directors are required to furnish the Authority with an explanation of the financial statements or prepare revised financial statements.

30. Enforcement • In the event that, at the end of the specified period, the directors have neither, in the Authority’s opinion: • given a satisfactory explanation • nor revised the financial statements, • the Authority may apply to the High Court for a declaration of non-compliance and associated orders.

31. Enforcement • If, having considered the matter, the High Court is satisfied that an instance of non-compliance exists, the Court may make a declaration to that effect and may, inter alia; order the following: • the revision of the financial statements and/or directors’ report; • the re-audit of the financial statements; • that the directors take specified steps to bring the Court order to the notice of persons likely to rely on the financial statements; • that the Authority’s, and reporting entity’s, costs be awarded against the directors (in that context, every person who was a director at the time the financial statements were approved is considered to have been a party to that approval unless s/he can show that they took all reasonable steps to prevent approval (section 26(9)).

32. Enforcement • In the event of an application being made to the High Court, the Authority is required to furnish the CRO with: • notice of the application; and • a general statement of the matters at issue. • On the conclusion of proceedings, the Authority is required to furnish the CRO with: • a copy of the Court Order; or • notice that the application has failed or has been withdrawn.

33. Other Authority Activities • Dealing with complaints received from members of the public • Application for Recognised Body status • Protection of ‘Accountant’ • CLRG – member • APB – observer • ASB – observer

34. Further Information • Further information on the Authority and its activities may be obtained from: IAASA 2nd Floor, Willow House Millennium Park Naas Co. Kildare Tel: +353 (0)45 983600 Fax: +353 (0)45 983601 Email: info@iaasa.ie Web: www.iaasa.ie

35. End of Presentation Thank You